The back story: AcelRx Pharmaceuticals (ACRX) is a small-cap specialty pharma company developing pain medications that has a Phase III drug trial due out this summer, the kind of catalyst I like to get ahead of by four to six weeks. I made my first move on this stock on June 29, buying 3,000 shares at $2.10, planning to buy 10,000 shares total as the big event gets closer.

The plan: I’m less concerned with catching the low or selling at the actual high, and more concerned with the timing of a situation like this. I like to average in slowly, eliminating some of the volatility; I’m trying to pick spots where the price is moving sideways.

The follow-through: Monday, with the stock sitting near lows and at support levels, I added 2,000 shares at $2.15 each. Now halfway into the position I want, I don’t plan to set my exact goals or a stop-loss until I have accumulated the full 10,000 shares.

That said, I see a potential upside of about 30 percent, and I will set my stop at 10 percent. That means I’d like to sell at close to $2.70, if everything goes right, and I’d stop out around $1.90.

The plan from here: Obviously, I’m looking to complete my purchase, planning to sell the stock roughly a week before the catalyst event. One thing I particularly like about the ACRX situation is that there is a second catalyst for the stock, a Food & Drug Administration (FDA) approval date set for October.

Having two catalysts can reduce risk and volatility; people are more interested in owning or trading a stock with two pending news events and the second catalyst creates potential upside even if the first one turns out to be negative. It’s a good situation to be averaging into waiting for the stock to rise as the news date approaches.

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   Kyle Dennis runs Kyle Dennis’ Biotech Breakouts (biotechbreakouts.com). He is an event-based trader, who prefers low-priced and small-cap biotech stocks.  At the time this article was published on RagingBull.com, he held 5,000 shares of ACRX  and was planning to purchase 5,000 more as described in this commentary; he had no other options or open orders in the stock. He has traded ACRX many times in the past, most recently a day trade on May 11 for a small profit.

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